Public and Commercial models of access in the digital era

DIRECTORATE GENERAL FOR INTERNAL POLICIES
POLICY DEPARTMENT B:
STRUCTURAL AND COHESION POLICIES

CULTURE AND EDUCATION

PUBLIC AND COMMERCIAL MODELS OF
ACCESS IN THE DIGITAL ERA

This document was requested by the European Parliament's Committee on Culture and
Education.

AUTHORS
Claudio Feijoo, Sven Lindmark, Juan Pablo Villar, Carlota Tarín, Javier Gelabert,
Beatriz Matía.

RESPONSIBLE ADMINISTRATOR
Markus J. Prutsch
Policy Department B: Structural and Cohesion Policies
European Parliament
E-mail: poldep-cohesion@europarl.europa.eu

LINGUISTIC VERSIONS
Original: EN
Translation: DE, FR

ABOUT THE EDITOR
To contact the Policy Department or to subscribe to its monthly newsletter please write
to: poldep-cohesion@europarl.europa.eu
Manuscript completed in April 2013
© European Union, 2013
This document is available on the Internet at:
http://www.europarl.europa.eu/studies

DISCLAIMER
The opinions expressed in this document are the sole responsibility of the authors and do
not necessarily represent the official position of the European Parliament.
Reproduction and translation for non-commercial purposes is authorised, provided the
source is acknowledged and the publisher is given prior notice and sent a copy.

DIRECTORATE GENERAL FOR INTERNAL POLICIES
POLICY DEPARTMENT B:
STRUCTURAL AND COHESION POLICIES

CULTURE AND EDUCATION

PUBLIC AND COMMERCIAL MODELS OF
ACCESS IN THE DIGITAL ERA

Abstract
This study provides an overview of the status and potential evolution of
how content is delivered to the wider public in Europe, including the
experience of the public sector and commercial providers. On the base of
problems and causes identified, a series of recommendations are made
to respond to the challenges of the digital era regarding access to
content in Europe.

IP/B/CULT/IC/2012_18
PE 495.858

April 2013
EN

Public and Commercial Models of Access in the Digital Era

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CONTENTS

LIST OF ABBREVIATIONS

5

LIST OF TABLES

7

LIST OF FIGURES

9

EXECUTIVE SUMMARY

11

1. SCOPE AND METHODOLOGY

21

1.1. Scope

21

1.2. Methodology

21

1.3. Structure of the study

24

2. COMMERCIAL CONTENT MARKETS

25

2.1. Digital content demand in the European Union

27

2.2. Film

29

2.3. Videogames

51

2.4. Books

63

2.5. Newspapers

82

2.6. Comparison between commercial sectors

100

RELEVANT REFERENCES IN COMMERCIAL CONTENT MARKETS

103

3. THE CHALLENGE OF EUROPEAN PUBLIC CONTENT

107

3.1. Public content: delimitation of the term and types of content

109

3.2. Status of digitisation

113

3.3. Access to digital cultural heritage

115

3.4. Business models for digital public content

119

3.5. Funding

134

3.6. Access to public digital content in the age of content platforms

143

3.7. Obstacles in the transition to the digital era

146

RELEVANT REFERENCES ON EUROPEAN PUBLIC CONTENT

151

4. GENERAL CONCLUSIONS AND RECOMMENDATIONS

155

ANNEX I: FACT SHEETS OF SELECTED NATIONAL MARKETS OF DIGITAL
CONTENT
165
ANNEX II: ONLINE SURVEY CONDUCTED AMONG PRIVATE AND PUBLIC
ORGANISATIONS IN THE FIELD OF DIGITAL CONTENT
203
OTHER REFERENCES

209

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LIST OF ABBREVIATIONS
AAP Association of American Publishers
Apps Application software
ARROW Accessible Registries of Rights Information and Orphan Works
towards Europeana
BBC British Broadcasting Corporation
BnF Bibliothèque Nationale de France
CC0 Creative Commons Zero Public Domain Dedication
DRM Digital Rights Management
EGDF European Games Developer Federation
EGEDA Entidad de Gestión de Derechos de los Productores Audiovisuales
ePUB Electronic Publication, an official standard of the International Digital
Publishing Forum
EU European Union
EU-27 The current 27 Member States of the European Union
EUR Euros
F2P Free to Play
FEP Federation of European Publishers
ICT Information and Communications Technologies
IPR Intellectual Property Rights
IPTS Institute for Prospective Technological Studies
ISPs Internet Service Providers
JISC Joint Information Systems Committee
M€ Millions euros

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MARC Machine-Readable Cataloguing
MDCE Museums Digital Content Exchange
MoU Memorandum of Understanding
NL The Netherlands
OECD Organisation for Economic Co-operation and Development
PC Personal Computer
PPPs Public-Private Partnerships
PPV Pay per View
PSI Public Sector Information
PwC PricewaterhouseCoopers
RAI Radiotelevisione Italiana
RTVE Radio Televisión Española
SCA Strategic Content Alliance
SMEs Small and Medium Enterprises
SVT Sveriges Television
TV Television
UK United Kingdom
UNESCO United Nations Educational, Scientific and Cultural Organisation
USA United States of America
VAT Value Added Tax
VoD Video on Demand
Vs. Versus
WAN-IFRA World Association of Newspapers and News Publishers

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LIST OF TABLES
Table 1
General characterization of media and content demand in Europe
Table 2
Gross box office sales (€ million) and admissions in Europe (millions) in 2011
Table 3
Key figures of European film industry (2009)
Table 4
Key figures of European film distribution (2009)
Table 5
Key figures of European publishing computer games sector (2009)
Table 6
World leading publishing companies by turnover (2010, € million)
Table 7
Key figures of European book publishing sector (2009)
Table 8
The e-book market (€ million)
Table 9
Spending on print media advertising (€ billion)
Table 10
Key figures of European news publishing sector (2009)
Table 11
Share of total worldwide ad spending by medium 2006-2010 (%)
Table 12
Comparison between commercial sectors
Table 13
Progress in digitisation of collections by type of cultural institution in 2010
Table 14
Progress in digitisation by type of cultural institution in 2012
Table 15
Digitised materials publicly available on the Internet in Europe (%)
Table 16
Sources of funding for digitisation per country
Table 17
Country contributions to Europeana in number of digital objects, top 15 countries
only
Table 18
Europeana content by type
Table 19
Barriers by area of analysis
Table 20
Drivers by area of analysis
Table 21
Summary of recommendations for the public sector on business models and IPR
management and legislation by type of content copyright

7

28
33
34
35
54
65
68
69
85
87
88
101
114
115
117
135

144
145
148
149

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LIST OF FIGURES
Figure 1
Global Box Office ($ billion)
Figure 2
Top 10 Box Office Markets excluding USA/Canada ($ billion)
Figure 3
Worldwide physical video market share (%)
Figure 4
International spending on DVD/Blu-ray Disc ($ billion)
Figure 5
Consumer spending on relevant online access models in Europe (€ million)
Figure 6
Cinema attendance frequency per capita in 2009 (age group - 5 and 79)
Figure 7
Average number of DVDs or BDs purchased per equipped household in 2011 (units)
Figure 8
Time spent watching online videos in EU-5 and USA during December 2010 (hours)
Figure 9
The traditional film sector value chain
Figure 10
EU market share by country of origin in 2011 (% admissions)
Figure 11
2011 Cinema Screens by Format in the World (%)
Figure 12
2011 Cinema Screens by Format in Europe (%)
Figure 13
Worldwide video games software market by segment (€ billion)
Figure 14
European video games software market by segment (€ million)
Figure 15
Share of revenue by type of video games in 2011
Figure 16
Types of games played in Europe (% online population)
Figure 17
Devices used for games (% online population)
Figure 18
Value chains of video games industry and breakdown of final retail price
Figure 19
Book Publishing World Market ($ million)
Figure 20
Global book market in the top five European markets (€ billion)
Figure 21
Turnover (€ billion), number of titles (thousands) and employment (thousands) of
the publishing industry in Europe
Figure 22
E-book share of total book market
Figure 23
Population who have purchased an e-book in the past 6 months

9

30
31
31
32
36
37
38
39
40
41
43
43
52
53
55
56
56
58
65
66

67
69
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Figure 24
Population who have downloaded free e-books in the past 6 months
Figure 25
Traditional book market value chain
Figure 26
News Publishing World Market ($ million)
Figure 27
Key figures of the EU-27 news publishing market
Figure 28
Share of digital advertising in total revenue of newspaper sector (%)
Figure 29
Paid-for dailies: total average circulation/adult population (copies per thousand)
Figure 30
Percentage of individuals who read/download online newspapers/news magazines
Figure 31
Newspaper industry value chain
Figure 32
News value web
Figure 33
Forms of access to cultural heritage
Figure 34
Ways of accessing digital collections in 2012
Figure 35
Public sector as single actor of the value chain
Figure 36
Public sector as part of the value chain
Figure 37
Sources of funding for digitisation per type of institution
Figure 38
Digital lifecycle model
Figure 39
Funding Europeana 2011-2015

10

71
72
84
86
89
90
91
92
93
116
118
120
121
136
137
145


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EXECUTIVE SUMMARY
Scope and Methodology
This study provides an overview of the status and evolution of the way in which cultural
and creative, both commercial and public, content is delivered to and accessed by the wider
public in Europe. Trends, obstacles and drivers in the transition to a digital era are
identified and provide a basis for a set of recommendations.
The media and content sector encompasses a set of industries including music, film and
video, publishing (books, newspapers and magazines) and broadcasting (radio and TV) and
sometimes also videogames and other information services (news agencies, portals,
directories, etc.). These industries include a number of distinct activities (e.g. recording,
publishing, performing, distributing, broadcasting and retailing) arranged in value chains
with three main stages: production, distribution and consumption.
The study analyses commercial content and public content separately. First, it provides an
analysis of four of the main (commercial) industries in the media and content sector – film,
videogames, books and newspapers – aiming to highlight the disruption brought about by
digitisation, their common attributes as well as their dissimilarities across the industries
and possible implications for their future developments. These industries were chosen
according to similarities with public content (for film, books and news) and their innovative
nature (videogames), in order to maximise lessons to be learned for the public content
sector.
Due to its distinctive features (e.g. regulatory and public good implications) when
compared to commercial content, public content has been examined separately. In
addition, since the digitisation process is still incipient in the public sphere, this structure of
analysis helps identify the lessons that can be extracted from commercial provision and
applied to public content.
The analysis covers the whole EU, supported by more in-depth analyses of seven Member
States: Estonia, France, Germany, Italy, Spain, Sweden and the United Kingdom (including
fact sheets in Annex). Data gathered combines desk research with 10 in-depth interviews
and an online survey (75 valid surveys were collected, 41 from public stakeholders, and 34
from private stakeholders). In addition, a number of cases have been identified. Short
descriptions of these cases are included in the study in boxes to illustrate findings and key
aspects of, for instance, the business models or funding models described.
The study is structured as follows. Chapter 1 introduces the objective, scope, method and
structure of the study. Chapter 2 overviews the four commercial content industries: Film,
videogames, books and newspapers, providing for each one: (1) a general description
including overall performance indicators on the status of the current market and the
transition to digitisation; (2) value chain analysis; (3) new business models; (4) an analysis
of financial sustainability and funding; (5) illustrative case studies; and (6) conclusions.
Chapter 3 is dedicated to public content, including (1) introductory definitions; (2) general
overview of the status of digitisation; (3) availability of digital content and corresponding
business models; (4) funding issues; (5) the role of content platforms and their impact on
public content delivery with a brief examination of Europeana; and (6) identifying the main

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obstacles the public sector is facing in its transition to the digital era. Chapter 4 gives a
summary of the general conclusions of the study and a series of recommendations on how
to stimulate digital content accessibility and reutilisation in Europe.
Annexes include fact sheets for each of the countries selected for further analysis (Estonia,
France, Germany, Italy, Spain, Sweden and the United Kingdom) as well as a summary of
the online survey and references.
This summary is in line with the structure of the study with the addition of a general
introduction to the (commercial and public) content markets, which synthesizes findings
from the study.

Content Markets – General Features and Developments
Some two decades ago media and content industries were relatively mature, characterised
by high returns to scale and scope, with marked barriers to entry (due to the high costs of
production) and, therefore, prone to concentration. Markets were culturally segmented and
distribution was territorially divided. From the public perspective, positive externalities in
media and content were the main argument for different types of public policies and
regulations, including in some cases direct provision of content and information through
variations of public service.
Digitisation brought radical transformation to the sector, reducing production and
distribution costs, as well as changes in user consumption and perception of media and
content. These changes have disrupted the structure of the content industries and pose
entirely new challenges. In addition, in the case of public information and content, there is
now considerably less difference from commercial products/offers, at least from the
consumers’ perspective.
Regarding the structure of the industry, new entrants and new media have appeared, and
although some legacy features of the industry persist, in particular the high returns to scale
and scope for professional content, the existence of considerable externalities and cultural
distinctions, new digital stakeholders are currently leading the process of re-intermediation.
Public information and content is only starting to use the potential of these new entrants
and new media, and has yet to work out a model to reconcile public objectives and
commercial interests in the digital environment.
Together with technology and socio-economic changes, two other phenomena have had an
adverse impact on media and content industries: online copyright infringement (often
labelled ‘piracy’) and the failure of the industry to exploit digitisation to create innovative
solutions to compensate the effects of copyright infringement. A Substantial part of the
public sector shares this myopic attitude of not providing users with appealing digital
content.
New digital media have some specific features differing from traditional media. Apart from
the reduction in costs of production and distribution and possibilities for interaction and
personalisation of the media experience, new media enjoy reduced costs for service at a
distance, thereby creating incentives for de-territorialisation and making traditional
regulation more difficult. The capacity for personalisation of digital media also allows for –
at least theoretically – better implementation of consumers’ preferences for the long-tail
preferences of consumers and the catalogue of providers. The lowering of entry barriers to
non-professional content and information has created new forms of user-driven innovation

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where consumers can express themselves more easily than ever, challenging both the
legacy industries and existing regulation. Social network innovations have also been used
by new players to enter into the distribution sector of this domain. This same absence of
barriers has eased abuse of professional content, and regulation and policy making has so
far failed to deploy efficient solutions to the problem, proving a lack of understanding of
consumer perspective.
Looking at the short to mid-term future, some general trends in the evolution of media and
content industries can be identified: They can be grouped by themes: structure of the
industry, production, distribution, consumption, business models and consumer behaviour.
Regarding the structure of the industry, legacy media and content will largely survive
but will be smaller than prior to digitisation – the music industry is a key example – and
new players will be the driving force in its evolution. New players (e.g. new intermediaries
from the ICT sector) currently aiming to commoditise content as their main business
models are only indirectly connected to the production of media and content, therefore not
necessarily sharing the “cultural” values traditionally associated with parts of this industry.
Also, the current structure of the industry presents new forms of potential market
dominance, such as platforms and the ecosystems around them – mobile and social media
as main examples (e.g. Android, Apple, Facebook). The platforms behave like multi-sided
markets, gathering developers, producers, advertisers and consumers to create a full
ecosystem, in which the owner of the platform keeps control over its main features and
evolution.
The professional production of media and content increasingly needs to consider several
media simultaneously considered for content release – the cross-media or trans-media
experience. Media conglomerates are adapting their production structures to this new
paradigm. However, public content used to be aimed mainly at one particular media (i.e.
television) and a lack of resources makes its extension to other media difficult, unless a
complementary business model can be found.
Distribution of content is where the re-intermediation process is mainly taking place and
where new agents have entered the media and content domain (e.g. Apple, Netflix). Their
approaches to markets are radically different from legacy media and they are deeply
modifying the consumer experience – time shifting in TV, over-the-top services, social
media, or mobile apps as main examples. Public content is experiencing difficulty becoming
part of the new ecosystem without being cannibalized.
Consumption of digital media and content by individuals is taking place in an increasingly
connected environment, more interactive, more mobile, more social, and where several
media are used complementarily if not simultaneously. Consumers can also become
producers of their own content. But all of this requires digital literacy, adequate user
equipment and new skills. Therefore, it can create yet another digital divide.
Business models in media and content are also changing. Traditionally, the revenue
streams of media and content industries came from subscriptions, sales to consumers and
selling audience attention to advertisers. However, both these revenue models confront
specific difficulties in their translation to a digital environment. In the case of advertising, a
relevant part is moving from traditional into social media (and search engines) where
reaching out to a wider audience of interested consumers is more effective and where
business models involving audience personal information is becoming more prominent.
Digital paid-for solutions are still in their infancy, with digital subscription services – where
the cloud is taking on an increasingly important role and blurring the distinction of products

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and services – replacing traditional product purchases. Also, some new business models
have appeared, such as virtual items or in-app purchases, typical in gaming. In general,
digitisation allows for the introduction of more flexible business models, better suited to
specific needs of consumers. However, these have not compensated the decline in revenue
streams of traditional businesses.

Commercial Content Markets – Film, Videogames, Books and News
Apart from these general trends, each of the sectors analysed in the study has its own
specificities, which are outlined below.
In Europe, the film (cinema, video) market is dominated by US films (approx. 60% market
share), with strong EU local productions aimed at domestic markets. The main digital
challenge is the quest for a suitable modification of the release window system to cope with
new media, and the threat from online copyright infringement to achieve a sustainable
legal offer of digital films. From the consumer perspective, there is as yet insufficient
provision of digital videos and films across territories due to licence limitations. In fact,
online digital consumption of video and film is still very limited (5% in 2010), compared
with overall consumer spending, although film production is already mainly carried out in
digital format. Digitisation of films reduces costs and simplifies post-production and allows
for the implementation of innovative business models, better suited to the demands of
users such as impulse purchasing, reproduction quality, price or type of access device.
The videogames industry is already a digital industry in terms of production, consumption
and, partly, distribution and is a showcase for techno-economic innovations, able to attract
increasing demographics to gaming. In fact, among the investigated media and content
industries, the videogames industry has the highest percentage of revenue derived from
online distribution (42% in 2011). This on-going shift to online distribution is altering the
traditional value chain of the sector, increasingly blurring the role of traditional agents,
such as publishers and distributors. EU publishers hold a reasonably strong position,
accompanied by quite a large number of innovators and entrepreneurs in the games
development area, particularly in the growing online or mobile gaming segments. The
disintermediation process is favouring the direct relationship between games developers
and online retailers, or even final customers. The overlap between videogames and the ICT
sector has facilitated the creation of an innovative ecosystem with new technologies and
business models. Multiple business models are being adapted to the needs of users in areas
such as access modes (via web browser, client application installed on the computer,
mobile application, etc.), payment (pay per download, repeat subscription payment,
payment for game extensions or to access game extensions, pay per purchase of items,
etc.), or game devices (consoles, computers, smart phones, tablets, etc.). One of the
business models created by the videogames industry, the “free to play” model (or
“freemium” model), may be of interest in the provision of public content, as it allows a
simple distinction to be made between public service, basic objectives and further
commercial interests.
The book industry is the latecomer to the digitisation process (with some notable
exceptions for niche products such as encyclopaedias). This fact has given the industry the
opportunity to learn from the experience of other media and content industries. In 2012
the e-book market represented just 4.5% of global sales of books in developed countries
(North America, EU-5 and Japan). From the EU perspective, it is the only market in the
media and content industry where European companies hold a leading position. However,
US companies lead the transition to the digital age. In addition, online distribution is

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dominated by companies outside the book publishing industry (e.g. Amazon) and it is only
very recently that publishers have started to launch initiatives to deploy their own market
digital platforms to sell e-books online. This e-book market today is just a digital version of
the paper market, with the same business models. The key element in the development of
the market is the new reading devices: e-book readers and tablets. Currently, two models
coexist: closed models, linked to specific devices, in which the user can only acquire books
in the store of the device manufacturer and cannot access them from any other device; and
open models, based on online platforms with books reproducible on any device. The advent
of e-books has altered the cost structure as has already happened in other media and
content industries. It is estimated that the total costs of online models are 15% to 25%
lower than those of physical models. Public initiatives regarding digitisation processes of
existing literature are competing with private initiatives. This situation is causing a shift of
intervention based on regulation towards contract or partnerships models.
The newspaper industry is witnessing a decrease in circulation, and a strong fall in
revenue, due to the impact of digitisation. In many ways, the traditional printed-press
sector was the first to be affected by the success of the Internet as a source of information.
However, the demand for online news is also growing together with an explosion in types of
formats and models of production, and dissemination of news online. Therefore, online
journalism has often been referred to as having a potential compensatory effect, even if its
structure, skills and possibly values differ considerably from traditional journalism. The
overall newspaper business model is confronted by the reality that paying for and reading a
daily newspaper is quite different from reading it online free of charge. As a consequence,
declining print and advertising revenues are not sufficiently offset by increases in online
advertising revenues. Digital newspapers have attempted to replicate online the business
models of print versions, including models of payment per copy, subscription and
advertising revenue with mixed results. Some newspapers even experimented with the
pay-wall model (access to content via subscription), but had to pull out, once they found
that the income from the sale of access to content did not offset advertising losses. After
this initial failure, newspapers have tried to reintroduce the pay-wall model for premium
content, such as financial information. Finally, the emergence of tablet PCs and e-readers
seems to be offering some opportunities to the digital press sector. Several newspapers
have launched services for these devices, with a subscription model to access the content.
However this is still too incipient to extract general valid conclusions.

Public Content
The public content analysed in this study includes cultural and historical heritage content
and public sector information, with a focus on cultural content held by public service
broadcasters, educational, research and cultural establishments. With respect to copyright
protection, public content encompasses: (1) works in the public domain; (2) works where
copyright appertains to a public entity; (3) works where copyright appertains to a private
subject but which are guarded or held by a public entity (including orphan and out-ofcommerce works).
Although the EU and its Member States have made a huge effort to make digital content
more accessible over the last decade, public content is still in the early stages of
digitisation. Overall, some 20% of cultural content has been digitised, ranging from 4% for
national libraries to 42% for art museums. On top of that, only about one third of that
digitised content has been made publicly available online, hence only about 6% of the
European cultural content is accessible online.

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Digitisation is a costly process especially when considering that the actual technical
conversion to digital form is only one part of the process. Clarifying copyrights and reaching
agreements with all copyright holders is particularly costly. The process of making public
digital content available in Europe has so far been focused on the digitisation process itself.
It has been rather fragmented both at the European and Member State level, consisting in
mainly short-term projects with funding coming mainly from public sources, rather than
private. Encouraged by the European Commission, a number of Public-Private Partnership
(PPP) models have been implemented. Although sometimes successful, there have also
been problems with these models. Among other things, the public sector argues that it
needs to be in control of projects in order to safeguard public interest, while the private
sector argues that public institutions often lack the necessary commercially oriented skills.
Given the restricted budgets, the economic uncertainty and the high costs of digitisation,
new business and access models have been devised to allow a wider access to cultural
content while guaranteeing the copyrights and related intellectual property rights of third
parties, and to create revenues to guarantee the long-term sustainability of projects and
services. These business models for public content can be categorised according to who
holds the copyright (public domain, copyrighted, orphan content) and how content is
exploited (commercial use or non-commercial use). The provision of public content to
commercial players for exploitation may either be free or involve one-off payments or
revenue-sharing schemes (normally at marginal costs). For non-commercial use public
content in Europe is mainly provided free of charge on an open access basis. However,
business models already in place for commercial content in other industries are increasingly
being applied by heritage and cultural institutions for reasons of sustainability. Most cultural
institutions do not yet offer ways (or licences) to make commercial use of their content
and, with respect to this, policies are not clear. To facilitate the commercial exploitation of
public content business models must be specifically designed for this purpose, creating
simple licences that boost re-utilisation.
Orphan works constitute a large share of available content. These works create problems
for digitisation and online distribution. In spite of the recent EU Directive 2012/28/EU,
several problems persist: (1) legal uncertainties; (2) economic uncertainties; and (3)
limitations regarding beneficiaries included in the directive.
Clearly, public content is still at a very early stage of digitisation and is faced with a
considerable number of barriers to progress. In particular, funds for digitisation are lacking,
due to: the reluctance of public administrations, immature business models, high costs and
dubious returns. In addition, a clear path is lacking in their transformation to the digital
domain and there is an absence of coordination among initiatives at all administrative
levels – including EU level. Furthermore, there is a shortage of adequate content
management, at least for orphan works and a lack of user awareness in general. There is
also a deficit in appropriate skills within public institutions, and the multiple and divergent
small-scale negotiations with existing digital platforms are limiting the bargaining power of
the public bodies involved.
On the positive side, there is a potentially high demand for public content, waiting to be
adequately satisfied with the right combination of highly-qualified professionals working for
the public sector and government support – both direct and through regulation. A higher
level of coordination would be also needed in intellectual property rights management, and
in the digital provision of public content, including a better-harmonised framework for
digital intellectual property rights. Finally, user awareness and involvement (social

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innovation) seems to be a determining factor in the success of the future digital provision
of public content.

Opportunities, Challenges and Recommendations
Finally, having identified the opportunities and challenges for European content, a number
of recommendations are outlined here. Common opportunities across media and content
industries that are still not fully exploited in the EU include: production of cross-media
content, the creation of innovative user experiences from the wealth of public content, the
use of online distribution to improve content dissemination beyond national borders, and
tapping commercial initiatives and social innovation to meet the objectives in public
production and diffusion of content.
In spite of the many advantages and opportunities brought about by digitisation, a number
of challenges across the media and content industries remain. On the supply side, the
main challenges lie in that the advantages of digitisation often accrue to different players in
the value chain than those who invest in digitised content, creating a resistance to fully
embrace it. In addition, digitised goods are threatened by copyright infringement. On the
consumers’ side, there is still a notable absence of innovative solutions able to satisfy their
demands on usability and usefulness – the difficulties with multi-territorial licences in video
and film being a main example. More precisely, a simple and effective multi-territorial
licensing framework should be the main policy and regulatory challenge for media and
content in the EU, together with an intellectual property regime able to foster innovation
and creation, and acknowledge society’s new perspectives of media and content.
A number of recommendations are outlined below, to address the challenges identified in
the transition to the digital era and an information-based society.
The first set of recommendations of the study focus on the need for further funding of
digitisation, preservation, and technical and business innovations. This investment is
needed because of the positive economic and societal externalities arising from digitising
content. However, a re-think in funding schemes is needed. Further funding should:


involve continued support for the digital transformation of media and content
industries;



research into the development of technical and business innovations;



consider cross-media production as a prime opportunity;



establish new forms of long-term orientated funds, particularly for non-profit
organisations;



create specific programs and tools for entrepreneurs and innovators in digital
media and content covering early-stages to consolidation;



aim at creating European multi-sided platforms and ecosystems in digital media
and content, in particular using the sectors and areas in which Europe is leading;



promote cross-sector and cross-border production and distribution of content;



encourage PPP in the public domain for the acquisition of expertise, the use of
existing technologies and for funding initiatives; and



re-design existing programs to avoid duplication of initiatives.

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______________________________________________________________
Together with funding, European policies should also be orientated towards increasing
coordination and creation of economies of scale in the use of technical
infrastructures:


create economies of scale both in technical infrastructures and management units
for production and distribution of digital content and media;



encourage centralised or coordinated rights management agencies;



investigate and reduce transaction costs in the provision of digital media and
content throughout Europe;



fight insufficient provision of digital content and media across EU territories due to
market barriers;



coordinate actions in the digital public provision of content, including production,
distribution, consumption and negotiations with existing platforms;



bring content to wherever the user is: place content in existing platforms;



foster coordination among initiatives, and at all levels, in the digital provision of
public content particularly in their relationship with commercial initiatives; and



adopt a harmonised framework and package of measures – promotion of legal
offers, user awareness, collaboration of players involved in transactions with content
and media, specific legal measures – to fight online copyright infringement to “keep
honest users honest”.

Specific recommendations regarding the improvement of multi-territorial licences and
revision of the intellectual property regime:


improve harmonisation of the framework for digital intellectual property rights and
review the intellectual property regime to foster innovative and creative
developments, which is particularly needed for orphan works;



consider an improved multi-territorial licensing regime, including rapid
implementation through coordination of existing licences, for media and content to
bypass existing barriers to distribution and consumption inside the EU;



explore, research – and promote – new avenues in the intellectual property regime
(commons, open licences, etc):



promote open access to orphan and out-of-commerce works; and



guarantee educational use of public content under special conditions (open access is
recommended).

The fourth set of recommendations is orientated towards the improvement of access to
public content and the promotion of innovation around it:


re-think positively public policy on media and content, including the assessment of
direct provision of content and information through diverse variations on public
service;



consider in particular commercial initiatives and social innovation to meet the
objectives in public production and diffusion of content;



create an ecosystem around public content: open data and distribution platform
initiatives;

18


________________________________________________________________________


experiment and use – for specific types of public content – new flexible business
models taken from commercial content initiatives, in particular considering the
“freemium” model as it allows for a clear distinction between public service, basic
objectives and further commercial interests;



investigate and promote the role of users as “prosumers” of content of public
interest; and



promote the creation of innovative user experiences from the wealth of public
content, eliminating the current barriers so that innovators and entrepreneurs can
use it fairly.

The final set of recommendations is orientated towards raising user awareness and
education of highly skilled professionals:


raise user awareness of digital European heritage;



invest in talent: create positions in the public sector with the required digital
expertise; and



create a forum with the industry to work on a European curriculum for the media
and content sectors.

The architecture of the Creative Europe Programme, as the new framework programme
for the cultural and creative sector within the Multi-Annual Financial Framework 2014-2020,
already responds to some of the problems identified here. In particular, it is in line with
some of the recommendations made in this study, namely: it is continuing economic
support to the creative and cultural sector until 2020; it promotes transnational and crosssector actions; it focuses on capacity building; it aims to improve user awareness by
reaching new audiences; and it addresses, to a certain extent, the fragmentation of funding
and the short-term perspective of projects.
However, some of the above recommendations should be more specifically addressed by
the Programme, such as: cross-media production of content; cross-border online
distribution of media and content; placing EU public content in existing digital platforms;
creation of a European Curriculum; education and hiring of highly skilled professionals in
digital media and content; support for open public content; coordination of digital provision
of public content and use of infrastructures; venture capital/initial investment and common,
coordinated online distribution platforms (public content, newspaper industry).

19


______________________________________________________________

20


________________________________________________________________________

1.

SCOPE AND METHODOLOGY

1.1.

Scope

The objective of this study is to provide an overview of the status and potential
evolution of the way in which cultural and creative content is delivered to the wider
audience in Europe, both public and commercial. Trends, potential problems and their
causes in the transition to the digital era have been identified as a basis for detailed
recommendations that aim to respond to the challenges of an information-based society.
The media and content industries encompass a heterogeneous set of (sub-) industries
composed of music, film, video, videogames, publishing (books, newspapers, magazines)
and other information services (news agencies, portals, directories, etc.). They include
distinct activities – recording, publishing, performing, distributing, broadcasting, retailing,
etc. – arranged in a value chain with three main stages: production, distribution and
consumption. Digitisation has deeply modified each of these stages but not the chain itself,
apart from introducing the possibility of user interaction and enhancing their role as
“prosumers” (consumers as producers of content and information). In particular, this study
provides an overview of four of the main commercial activities within the media and
content industries film, videogames, books and newspapers, with the aim of
highlighting the disruptions brought about by digitisation, their common similarities as well
as dissimilarities and, as the process of digitisation is still ongoing, possible future
implications.
The main reasons for choosing these sectors for analysis is the similarity between contents
produced by three of the industries chosen – films, books and newspapers – and public
content, and the innovative nature the fourth, the videogames industry, which has
developed some of the most ground-breaking models of online content distribution that can
be applied to public content distribution. These four sectors provide important lessons to be
learnt for and in the interests of the public sector.
Because features of public content, such as regulation or public good implications, differ
considerably from those of commercial content, they have been examined separately. Since
the digitisation process is still in its infancy in the public sphere, this structure will also help
identify solutions that can be extracted from commercial provision and applied to public
content.
The analysis refers to the situation in the whole European Union. However, in order to
better illustrate findings, seven countries have been analysed in depth. Those countries
are: Estonia, France, Germany, Italy, Spain, Sweden and the United Kingdom representing,
respectively, major EU countries (France, Germany and the UK), one Scandinavian country
(Sweden), one Eastern country (Estonia) and two Southern countries (Italy and Spain).

1.2.

Methodology

The selected methodology for this study is a combination of desk research and primary
research. Primary research comprised in-depth interviews and an online survey.

21


______________________________________________________________
Desk research
The desk research used online and printed sources, for the most part reports and studies
from national commercial bodies devoted to content industry analysis, academic institutions
and public administrative bodies devoted to the preservation and promotion of cultural
heritage.
For data collection regarding countries analysed in depth, a local partner from each
selected country collaborated in the desk research, identifying data sources and, where
necessary, translating relevant reports and studies with the exception of Italy, for which we
employed our internal resources. The national partners were:


Strategic Content Alliance , United Kingdom



Cap Digital, France



Division of Technology & Society, Department of Technology Management and
Economics, Chalmers University of Technology, Sweden



Youth in Science and Business Foundation (YSBF), Estonia



Cluster Audiovisual Gallego, Spain



Dynamic Organisation Thinking, Germany

Online survey
An online survey was carried out among private and public organisations in the field of
digital content from the whole European Union. The survey, which comprised 75 valid
surveys of which 41 from public stakeholders and 34 from private stakeholders, has no
statistical significance but helped identify trends in the various countries for both the public
and commercial sectors. Results from the survey have been used to verify the main
findings from the desk research, in terms of business models, obstacles and driving forces
for the distribution of digital content in Europe.
The survey of the questionnaire is included in Annex II.
Interviews with experts
After the desk research and online survey, a series of interviews were carried out with
renowned experts in the field of content distribution in Europe validating previous findings
and complementing the analysis.
The interviews were semi-structured, lasting between 45 and 60 minutes, conducted in
person over the telephone, or IP conference. The interviewees were:


Mr Malte Behrmann, Secretary General, European Game Developer Federation,
Germany



Ms Fabia Buenaventura, General Manager, Spanish Federation of Audiovisual
Producers Associations, Spain



Prof. Richard Collins, Visiting Professor at City University London, UK



Mr Arnaud Decker, Secretary General, Pôle Radio/TV de Lagardère Active, France



Mr Stuart Dempster, Director, SCA, UK



Mr Pascal Ennaert, Coordinator, Vlaamse Kunstcollectie, Belgium

22


________________________________________________________________________


Mr Aitor Grandes, Founder and CEO, 24symbols, Spain



Mr Luis Rodríguez Moreno, Institutional Relations Director, Virtual Library Miguel de
Cervantes, Spain



Mr Koit Saarevet, Project Manager, Estonian National Archive, Estonia



Ms Annette Birgerson, Director of Communications, Ms Ingrid Hall-Roth, Director of
Research and Collections, Mr Odd Johansen, Director of Administrative Services, and
Mr Magnus Olofsson, Head, Vasa Unit. Vasamuseet, Sweden.

The data collected was analysed by the research team. The process of comparing and
analysing practices and models was done via International Benchmarking. In addition,
cases of success and failure were selected and summarised for illustrative purposes.
International benchmarking
International Benchmarking was conducted among seven countries: Estonia, France,
Germany, Italy, Spain, Sweden and the United Kingdom. The analysis focused on funding
strategies, both public and private, in the different stages of development in content
distribution. Conclusions have been used to analyse the current situation in Europe, and
cases presented to illustrate findings.
Main data and findings for each country are summarised in an attachment to the main
study in the form of country fact sheets. To facilitate the comparison and the consistency of
data, European data sources (including data for all the countries analysed) were preferred
to national ones, even if some of the latter might have provided more recent data. Some
missing information at European level was integrated with national sources.1 Data for
certain sectors in Estonia could not be identified.
Case studies
Cases have been identified for illustrative purposes. A short description of cases was
included in the study in the form of boxes to illustrate findings and key aspects of the
business models or funding models described.
Acknowledgements
The authors would like to thank Eva van Passel, Sarah Fahmy, Stuart Dempster, Nadia
Echchihab, Eero Elenurm and Erik Bohlin for their cooperation in the drafting of this study.

1

Accounts from the UK sources were maintained in pounds.

23


______________________________________________________________

1.3.

Structure of the study

The study analyses commercial content and public content separately.
Chapter 2 overviews four main content sectors: Film, videogames, books and newspapers.
A first section provides a general description, for each sector, together with overall
performance indicators on the status of the current market and the transition to
digitisation. A second section is devoted to the description of the value chain and
innovation models being implemented within these sectors. The overview is completed with
a number of case studies. A final section on conclusions closes the analysis of each market.
Chapter 3 is dedicated to public content. With the aim of providing an overview of the
models of access to public content in Europe, the analysis starts by defining “public
content” in the framework of this study. A general overview of the status of digitisation of
public content is then provided. The extent and the ways in which digital content is
currently available are outlined, together with corresponding business models, the latter
generically considered regarding how public organisations deliver content to create
revenues.
In view of the high costs of digitisation and current budgetary deficits in the public sector, a
section on funding is also included.
The role of content platforms and their impact on public content provision is considered in
the following section, which includes a brief examination of Europeana.
The analysis of public content ends by identifying the main obstacles the public sector is
facing in digital content delivery in its transition to the digital era.
Chapter 4 gives a summary of the general conclusions of the study and a series of
recommendations to boost digital content accessibility and reutilisation in Europe.
Attachments include a fact sheet for each of the countries selected for further analysis:
Estonia, France, Germany, Italy, Spain, Sweden and the United Kingdom.

24


________________________________________________________________________

2.

COMMERCIAL CONTENT MARKETS
KEY FINDINGS
General trends in the evolution of media and content industries can be identified as
follows:
• Structure of the industry: The
players are driving its evolution.
consumption of media and content
values traditionally associated with

industry is smaller than prior to digitisation and new
These players are not directly connected with the
and therefore do not necessarily share the “cultural”
parts of this industry.

• Production: for content release nowadays, several media need to be
simultaneously considered: the so-called cross-media or trans-media experience. Media
conglomerates are adapting their production structures to this new paradigm.
• Distribution of content is where the re-intermediation process is mainly taking
place and where new agents have entered the media and content domain. The
distribution of media and content has been moved to online platforms, where several
sides of the market are addressed – developers, producers, advertisers and
consumers – to create an ecosystem around the platforms.
• Consumption of digital media and content takes place in an increasingly interconnected environment which is more interactive, more mobile, more personal and
more social. Consumers can become producers of their own content. Additionally, the
Internet has become the first source of immediate information for interested users, to
the detriment of traditional media.
• Business models: traditionally, the main revenue source of media and content
industries came from subscriptions and consumer sales, and from selling end-user
information to advertisers. In general, digitisation has enabled the introduction of more
flexible business models, but has not compensated for the traditional sources of
revenue. In advertising, the main revenue source for digital content, prices (lower than
in traditional models) are not increasing at same rate as the growth of audiences, and
because of the high levels of copyright infringement in certain industries.
•

Challenges:

-

From the supply side: the advantages of digitisation benefit a wider range of players
in the value chain with respect to those who invest in digitisation, thereby creating
resistance to fully financing it. Further financial threats lie in online copyright
infringement.

-

From the consumer perspective, there is still a lack of innovative solutions able to
satisfy demands for usability and usefulness – the difficulties with multi-territorial
licences in video and film being a main example.

Two decades ago the media and content industries were relatively mature,
characterised by high returns on scale and scope. The costs of producing a prototype were
high, while the costs of subsequent copies were much lower. As a consequence, industry
structure displayed high barriers to entry and was therefore prone to limited concentration.

25


______________________________________________________________
Markets were culturally segmented, producing substantial advantages for large and
homogeneous communities, and creating a “natural” territorial distribution of contents
according to aspects such as language.
Within this pre-existing framework, digitisation technology brought about a radical
transformation. It dramatically reduced distribution costs while considerably reducing
production costs at the same time. In addition, technology has facilitated a socioeconomic change in users, illustrated in an increased propensity towards privatisation of
media and content consumption, creative easiness, sharing and interacting with information
and content, possibilities to manage several distinct media, and a shift in the perception of
value of different media. These changes have brought with them a wealth of innovations
in applications, services and business models, but they have also disrupted the structure
of traditional industries and given rise to entirely new challenges.
Regarding the structure of the industry, new entrants and new media have appeared
due to the success of new technologies among users, the decline of obstacles to entry – a
potentially short-term effect – the blurring of territorial frontiers for service providers, and
the de-professionalization of part of content production (user-generated contents).
However, some legacy features of the industry persist, in particular the high returns to
scale and scope for professional content, dominant externalities and cultural distinctions. As
a consequence of digitisation, media and content industries initially followed a process of
disintermediation, but currently a new process of re-intermediation is underway with
new digital stakeholders assumed leading role.
Digitisation has had an adverse impact on traditional media (“legacy media”) and
content industries, due not only to technology and socio-economic changes, but also to
major modifications in the traditional approach of supply and demand. Users have
transferred part of their consumption to new media and have modified existing patterns of
consumption, adding interaction, production of content – the “prosumer” phenomenon –
and using several media simultaneously. While new media are potentially better suited for
advertising and the personalisation of media and content, online copyright infringement has
reduced the chances of a smooth transition to digital media. Furthermore, the conservative
behaviour of the industry has delayed the creation of innovative solutions to compensate
the effects of piracy.
All these impacts and challenges are addressed in the following sections. Section 2.1 is
devoted to the demands of digital content in the European Union, as an introductory
framework for the study of particular sectors. Sections 2.2 to 2.5 analyse four main content
sectors, namely film, videogames, books, and newspapers.
For each sector there is:
1) A general introduction, comprising key indicators of performance (global market,
European market, demand of content, added value), as well as indicators of the status of
transition to digitisation. The types of indicators used are the same across sectors, to allow
for direct comparison.
2) An analysis of the value chain and innovation models characterising these sectors.
Innovation models comprise the traditional perspective of business models, their
prevalence and their prospects for economic sustainability, but also the possibilities for the
creation of added value to their digital transformation.

26


________________________________________________________________________
3) A number of selected case studies, including an analysis of best practices and failures.
4) Conclusions, together with features of commercial initiatives that can be potentially
replicated by public entities for distributing their own content in order to improve
dissemination.

2.1.

Digital content demand in the European Union

Over 73% of European citizens are Internet users.2 Internet has changed the way people
communicate, generate and consume information. Internet has also changed the way
people consume media and cultural content.
According to Mediascope Europe, 73% of Internet users in Europe watched TV online, 67%
listened to radio online and 91% read news online in 2012.3
Consumer expenditure on recreation and culture in Europe varies across countries, ranging
from 5.2% of total household expenditure in Cyprus and Malta, to 1.9% in Estonia and
2.0% in Luxembourg. The average for the EU-27 is 3.3%.4 As a share of GDP most EU
countries spend between 4% and 6%.5
Globally, it is estimated that around 42.5% of spending on entertainment and media came
from digital spending in 2012. It is also expected that global digital spending will increase
at a rate of 12.1% CAGR6 annually until 2016, whereas non-digital spending will only be
2.8%. As a result, 67% of total spending will come from digital spending by 2016.7
Consumption of digital content has also changed in recent years. Access to online content is
nowadays multi-screen, both sequentially – changing from one device to another – and
simultaneously – using multiple devices at the same time.8 According to TNS,9 98% of
Europeans have a mobile phone, 58% a desktop, 56% a lap top, 30% a smartphone and
7% a tablet. Furthermore, access to Internet and to digital content is increasingly mobile:
in 201110 global smartphone shipments surpassed PC shipments for the first time. In 2011
mobile phones already accounted for 65% of non-computer Internet traffic in the EU-511

2
3

4

5
6
7

8

9
10

11

Seybert H. (2012): Statistics in focus 50/12, Eurostat.
Fennah, A. (2012) “Mediascope Europe”,
http://www.iabeurope.eu/media/98354/mediascope_europe_2012_paneuropean_launch_presentation_summary_interact_2012.pdf. IAB Europe. Accessed in March 2013.
Eurostat. Final consumption expenditure of households by consumption purpose, 2011. Accessed in 3 January
2013.
Enders Analysis (2012): Digital Europe: Diversity and Opportunity. Let’s Go Connected.
Compound Annual Growth Rate.
Stenzel, U., Goretti Sanches Lima, M. & J Downes, J. (2012): Study on Digital Content Products in the EU. IBF
International Consulting.
According to Google’s study The New Multi-screen World: Understanding Cross-Platform Consumer Behavior,
90%
of
users
use
more
than
one
device
to
accomplish
their
goal.
http://googlemobileads.blogspot.co.uk/2012/08/navigating-new-multi-screen-world.html. Accessed in March
2013.
TNS: Mobile Life 2012. http://www.tnsglobal.com/.
According to Canalys data during 2011 487.7 million smartphones were shipped compared to 415 million PCs.
News Room, Canalys website, http://www.canalys.com/newsroom/smart-phones-overtake-client-pcs-2011.
Accessed in March 2013.
EU 5 is comprised of France, Germany, Italy, Spain and the United Kingdom.

27


______________________________________________________________
and tablets for approx. 25%.12 In fact, most online tasks are initiated on a smartphone but
continued on another device, including video viewing.13
Another trend influencing citizens' consumption of digital content is the advent of usergenerated content. Internet has reshaped the way content is generated, with an enormous
impact particularly in the videosector.14 Facebook reported in 2012 that more than 300
million images were uploaded to their service every day.15 Every minute, 72 hours of video
were uploaded to YouTube.16 Twitter had over 140 million active users in 2012 and
published 340 million Tweets a day.17 According to NM Incite, a Nielsen/McKinsey company,
in 2011 there were 181 million blogs worldwide.18 This development in creation of content
is having a major impact in the value chain of the media and content industry.19
Altogether, these changes in consumer behaviour have created new patterns in demand
that have a clear impact on the way citizens access digital content. Users want content to
be mobile, social, accessible through various devices. They also want to re-use and create
new content at the same time. How these impacts are addressed in the content industry
will be analysed in the following sections.

Table 1: General characterization of media and content demand in Europe
Population (2012)20
Internet access
Internet users (2012)21

503,663,601 citizens
73.35%

Households with Internet access (2012) 75.74%
Households with broadband connection (2012)
Devices for Internet access22:
Households that access internet through mobile phone (2010)
Households that access internet through desktop or
portable computer (2010)
Households that access internet through smart tv
(2010)
Average expenditure on cultural services23
% of total household’s expenditure (2011)

75.74%
71.91%
15%
68%
4%
3.3%
Source: Several sources

12

13
14

15

16
17
18

19

20
21
22

23

Abraham, L. & Block, B. (2012): Connected Europe: How smartphones and tablets are shifting media
consumption. comScore and Telefonica.
Google (2012): The New Multi-screen World: Understanding Cross-Platform Consumer Behavior.
Cha, M., Kwak, H., Rodriguez, P., Ahn, Y. & Moon, S. (2007): I Tube, You Tube, Everybody Tubes: Analyzing
the World’s Largest User Generated Content Video System.
Blog for developers, Facebook website. https://developers.facebook.com/blog/post/2012/07/17/capturinggrowth--photo-apps-and-open-graph/. Accessed in March 2013.
Youtube Statistics webiste. http://www.youtube.com/yt/press/statistics.html. Accessed in March 2013.
Blog, Twitter website. http://blog.twitter.com/2012/03/twitter-turns-six.html. Accessed in March 2013.
News, Nielsen website. http://www.nielsen.com/us/en/newswire/2012/buzz-in-the-blogosphere-millions-morebloggers-and-blog-readers.html. Accessed in March 2013.
McKenzie, P., Burlkell, J., Trosow, S., Wong, L., Whippey, C. & McNally, M. (2012): User-generated online
content 1: overview, current state and context. First Monday, Volume 17, Number 6 – 4 June 2012.
http://firstmonday.org/htbin/cgiwrap/bin/ojs/index.php/fm/article/view/3912/3266.
Eurostat (Population at 1 January 2012). Provisional. Accessed on 3 January 2013.
Individuals who have used Internet in the last 3 months.
Eurostat. Households with access to Internet, by device for accessing via PC, digital TV, mobile device.
Consulted on 3 January 2013.
Eurostat: Final consumption expenditure of households by consumption purpose. Accessed on 3 January 2013.

28


________________________________________________________________________

2.2.

Film
KEY FINDINGS



US films enjoy a dominant market position in the EU (about 60% of market
share), while the EU industry has strong local film productions focused on domestic
consumption.



The release window system is being challenged by new digital media and the
industry has not yet found an alternative system.



Although rapidly growing, online digital spending is still very limited (5% of
total spending in 2010).



Overall production is already carried out as an all-digital process, while distribution
and consumption are increasingly carried out as online digital processes. In fact, the
industry is at a stage where the replacement of physical distribution of digital copies
(DVD, Blu-ray) with online distribution through the Internet has started, albeit
slowly.



Digitisation has reduced costs in production and distribution, creating new
opportunities for small producers and some degree of disintermediation in the value
chain.



Digitisation is still pending for half of all cinema screens, which constitutes a main
barrier to independent cinema networks.



Digitisation allows the implementation of innovative business models, which
more effectively address critical areas in demand, such as time constraints,
reproduction quality, price levels, and variety of access devices.



Online copyright infringement primarily affects the box-office release window.
This unfair competition limits the attractiveness of services complying with copyright
rules.



Geographical limitation of licences granted by producers significantly restricts
users’ access to content.



A significant barrier to launching online film distribution services by SMEs is the
licensing model used by film studios, which require substantial advancepayments. This fact hinders the access of SMEs to major commercial releases, which
are in high demand by users.



Another relevant barrier is the lack of awareness of the general public about the
existence of online film distribution services: a critical aspect to achieve economic
viability.

29


______________________________________________________________
2.2.1.

Introduction

The film industry is facing a huge challenge in its adaptation to digital distribution of
content. Digitisation not only impacts on the distribution process but the whole value chain,
as can be seen in the following paragraphs. This phenomenon has motivated important
changes in all processes involved in film production and distribution over a short period of
time. These changes are contributing to reshaping the traditional composition of the
industry, modifying classical ways of accessing films (new screens over different periods of
time) and allowing access to new agents who are trying to compete with the key players of
the sector: the film producers.
There is no doubt about the dramatic impact of digitisation on this industry. Focusing
analysis on the distribution process, for the purposes and objectives of this study, it is clear
that at almost every stage of the process, from cinema viewing to substituting hard copies
of films by online digital copies, the industry has had to modify its development to adapt to
new ways of distribution. The following paragraphs show the implications involved in
adaptation.
2.2.2.

Key indicators

The global market
The film industry comprises two main traditional sources of income: box office and physical
video retail and rental (DVD/Blu-ray). According to MPAA (Motion Picture Association of
America), global box office earnings reached $32.6 billion in 2011, up 3% on 2010
earnings.
Figure 1: Global Box Office ($ billion)

Source: Motion Picture Association of America, Inc.

In 2011, EMEA had overtaken USA/Canada as the region with highest box office incomes.
Latin America was the region with the highest CAGR (2008-2011), 17.6%.

30


________________________________________________________________________
Among the top box office markets, excluding US/Canada, there are four European
countries.
Figure 2: Top 10 Box Office Markets excluding USA/Canada ($ billion)


The other big income source of the film industry, physical video retail and rental, reached
$38.5 billions worldwide in 201124 with the following market share:
Figure 3: Worldwide physical video market share (%)
13,7%

39,5%
17,0%

29,8%
USA

Europe

Japan

Other regions
Source: International Video Federation (2012)

It is a highly concentrated market, as the main three regions account for 86.3% of total
spending. If the two main distribution models within the market (retail and rental) are
taken into account, there are significant differences between the three regions, as shown
below.
24

Estimated from International Video Federation (2012).

31


______________________________________________________________
Figure 4: International spending on DVD/Blu-ray Disc ($ billion)


Spending has dropped in all regions between 2010 and 2011 at different rates. While sales
fell by 10% in USA, they fell by 8% in Europe but only 1.9% in Japan. There are also
significant differences between contributions to the total market of rental and retail sales.
Rental sales in Japan accounted for 55.4% of total sales in 2011. However in the other two
regions, rental sales had less relevance (12.2% in Europe and 39.1% in USA).
The European market
According to the European Audiovisual Observatory, gross box office income in the
European Union reached €6,413 million in 2011, up 0.7% compared to 2010. The number
of cinema admissions (tickets sold) was 962 million.

32


________________________________________________________________________
Table 2: Gross box office sales (€ million) and admissions in Europe (millions) in
2011
COUNTRY
EU-27
Austria
Belgium
Bulgaria
Croatia
Cyprus
Czech Republic
Denmark
Estonia
Finland
France
Germany
Greece
Hungary
Ireland
Italy
Latvia
Lithuania
Luxembourg
Netherlands
Norway
Poland
Portugal
Romania
Russia
Slovakia
Slovenia
Spain
Sweden
Switzerland
Turkey
United Kingdom

GROSS BOX OFFICE
6,413
127.3
158.7
18.7
13.2
7.1
49.2
125.8
10.1
65.5
1,308.925
958.1
93
41.3
111.8
695.4
8.3
10.7
9.2
240
133.3
174.2
79.9
29.4
836.3
17.3
13
630
169
187.5
171.1
1,197.5

ADMISSIONS
962
16.8
22.8
4.7
3.3
0.9
10.
12.4
2.5
7.1
215.6
129.6
10.8
9.5
16.3
111.1
2.1
3.0
1.3
30.4
11.7
38.7
15.7
7.2
165.2
3.6
2.9
95.6
16.4
14.9
42.3
171.6

Source: European Audiovisual Observatory (2012)

The top five markets (France, Germany, Italy, Spain and the United Kingdom) of EU-27
account for 74.7% of gross box office income and 75.2% of admissions.
Regarding the physical video market, European spending fell for the seventh consecutive
year in 2011, ending the year at €8.3 billion, down 7.7% compared to 2010.26

25
26

Data from 2010.
International Video Federation (2012).

33


______________________________________________________________
The European industry
The film industry comprises 76,000 companies across Europe in several processes involved
in the value chain, with 375,000 persons employed.27 The European film industry obtained
a turnover of €55,400 million in 2009.
Table 3: Key figures of European film industry (2009)28

COUNTRY
EU-27
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United
Kingdom
Norway
Switzerland
Croatia
Turkey

55,400
1,299.2
110,1
403.1
1,116.1
6,661.4
38.4
422.2
862.8
5,305.7
11,433.2
4,596.4
22.2
29.9
32.1
81.6
1,169.9
2,223.9
616.3
849.7
583.1
296.1
123.3
101.2
409.2
2,100.3
14,533.2

ADDED
VALUE AT
FACTOR
COST (€m)
18,707.05
485.2
30.3
79.7
362.1
2,695.1
17.1
167.3
286.4
1,682.1
5,834.9
1,901.7
11.4
8.2
6.1
34.5
480.3
845.2
238.2
207.5
150.0
74.0
33.3
21.9
149.7
533.8
2,362.6

375,000
5,985
2,083
3,784
6,436
52,732
1,080
4,373
7,968
37,685
:
33,840
273
614
675
467
5,806
18,641
5,436
10,974
5,424
6,905
934
525
3,407
9,267
:

722.6
777.6
113.3
878.0

235.2
305.8
37.5
171.4

3,749
5,738
1,546
7,062

NUMBER OF
ENTERPRISES

TURNOVER
(€m)

76,000
1,912
549
2,299
1,448
6,216
186
953
1,966
7,267
12,296
6,140
87
162
104
144
3,227
1,311
1,531
4,677
1,849
1,665
449
46
959
5,185
13,691
2,124
404
579
1,145

NUMBER OF
PERSONS
EMPLOYED

Source: Eurostat (2012)

27
28

Eurostat (2012): SBS Database, NACE J5913. Accessed on 17 October 2012.
“:” means data not available.

34


________________________________________________________________________
The five major economies of the European Union (France, Germany, Italy, Spain and United
Kingdom) account for 60% of enterprises of the film industry and 76.7% of turnover. These
percentages show a highly concentrated industry in a low number of countries.
Regarding the process of distribution, there were more than 3,600 enterprises in 2008
(data of 2009 not available in Eurostat), with a turnover of €12,744 million in 2009.
Table 4: Key figures of European film distribution (2009)29

COUNTRY
EU-27
Belgium
Bulgaria
Czech Republic
Denmark
Germany
Estonia
Ireland
Greece
Spain
France
Italy
Cyprus
Latvia
Lithuania
Luxembourg
Hungary
Netherlands
Austria
Poland
Portugal
Romania
Slovenia
Slovakia
Finland
Sweden
United
Kingdom
Norway
Switzerland
Croatia
Turkey

12,744.13
238.8
18.0
:
229.2
1,618.5
:
:
219.4
:
3,004.3
853.7
0.9
:
4.8
:
841.1
:
76.3
119.8
146.0
43.5
10.0
:
117.9
486.1
3,144.4

ADDED
VALUE AT
FACTOR
COST (€m)
4,521.21
54.3
1.9
:
40.0
584.6
:
:
50.8
:
796.7
331.2
0.4
:
0.2
:
439.0
:
24.2
67.9
21.3
5.5
1.1
:
18.0
98.5
1,703.8

25,000
238
239
:
389
3,117
:
:
1,759
:
:
1,768
16
46
70
:
856
326
260
930
468
304
62
:
162
1,025
:

225.0
:
32.5
181.4

66.2
:
10.7
39.0

220
:
473
345

NUMBER OF
ENTERPRISES30

TURNOVER
(€m)

3,641
62
49
:
60
327
0
:
:
:
:
328
7
16
11
19
169
24
81
232
167
49
23
12
32
196
496
31
:
104
:

NUMBER OF
PERSONS
EMPLOYED

Source: Eurostat (2012)

29
30

“:” means data not available.
Data of 2008.

35


______________________________________________________________
In the case of film distribution processes it is difficult to provide accurate figures regarding
geographical distribution of enterprises and turnover due to the lack of information from
individual countries concerned. However, in general the film distribution sector shows the
same level of concentration as global film industry, since 61% of turnover comes from only
three countries (France, Germany and United Kingdom)
The transition to the digital age: The market for online films
The key indicator of the transition to digital distribution of films is current consumer
spending on available online access models. This spending, which comprises the main
online access models (TV-based video on demand and digital retail, rental and subscriptions
services accessed via computers and the Internet connected televisions) was about €1,200
million in 2011 in Europe,31 which represents an increase of 20.1% over 2010.
Figure 5:

Consumer spending on relevant online access models in Europe
(€ million)


The access model with the highest growth in 2011 was digital retail (46.6%), followed by
digital rental (or Internet VoD), up 41.7% to €117 million. Consumer spending on online
access models accounts for 12.8% of total spending on buying and renting films.32

31
32


36


________________________________________________________________________

Key indicators of demand
There are many indicators that illustrate the demand for films. The above sections aimed to
characterise demand from an economic and market perspective. Now we will turn to
indicators of individual user behaviour patterns in film consumption on screen including
cinema, TV and computers.
The first indicator illustrating demand of traditional access models is cinema attendance
frequency per capita. According to UNESCO, the country with the highest cinema
attendance frequency in 2009 was Iceland with 5.8 attendances per capita. Focusing the
analysis on the countries within the scope of the study USA, France, South Korea and UK
are the only four countries that break the threshold of 3 attendances per capita, per year.
Figure 6:

Cinema attendance frequency per capita in 2009 (age group between
5 and 79)

Source: UNESCO Institute for Statistics (2010)

37


______________________________________________________________

At a global level, this indicator shows how rare going to the cinema has become, as the
countries that make up the majority of world’s population report an attendance frequency
of less than one film per year.33
Another interesting indicator to measure the demand for films is the average number of
DVDs and Blu-ray Discs purchased per equipped household per year. In 2011 European
households purchased 3.6 DVDs and 1.8 Blu-ray Discs on average.34 In the same period US
and Japanese households bought 6.1 DVDs and 2.4 Blu-ray Discs, and 2 DVDs and 0.4 Bluray Discs on average, respectively.35
The following chart shows the evolution of this indicator from 2010 to 2011 for the most
relevant European economies.
Figure 7: Average number of DVDs or BDs purchased per equipped household in
2011 (units)


As can be seen in the chart, the purchase of physical copies of films has fallen in all main
European economies, both in DVD and Blu-ray Disc formats. The examples of Italy and
Spain are especially relevant, as equipped households purchased less than one DVD or Bluray disc per year.
The last indicator to be analysed is related to online consumption: average time spent
watching videos online.36 According to Comscore, video viewers from the top five European
economies spent 14.8 hours watching online videos in December 2010, just an hour less
than US video viewers.

33
34
35
36

Unesco Institute for Statistics (2010).
Although it could be more accurate to analyse the time spent watching films, all the studies are focused on the
general concept of “video”. We will use this concept, knowing that it is different from that used when
traditional access models have been analysed.

38


________________________________________________________________________
Figure 8: Time spent watching online videos in EU-5 and USA during December
2010 (hours)

Source: Comscore (2011)

There are pronounced differences among individual European countries. For instance,
German viewers spent almost 8 hours per month more than Italians watching online
videos.
Added Value
Online film distribution represents a growth opportunity for the European film industry,
given the dominance of the American Majors’ traditional channels of distribution and
subsequent viewing in physical format (according to figure 10, US films account for 61.4%
of admissions in cinemas). Online distribution allows new ways of providing contents to
final users without having to use channels and business models managed by American
Majors. This new form of distribution is causing a rethink of the release windows system:
until recently, digital distribution was confined to viewing films on free-TV, which limited its
development. Producers are now beginning to realise the added-value of this kind of
distribution, compared to distribution on DVD/Blu-ray. In fact, its obvious advantages over
physical media distribution (lower logistic costs, ubiquitous multi-device access, etc.) are
accelerating the process, making it the second most popular way of release only after film
premiere performances. In addition, the widespread infringement of online copyright has
had an impact on a change in mentality (promoting online distribution instead of relegating
it to one of the last release windows) among producers and distributors, as one possible
way of fighting it, i.e. by legally providing the content that the user wishes to access a
short time after its cinema release.
From an economic point of view it is difficult to quantify the added-value of online film
distribution since there are no precise statistics on the volume of business these
distribution models37 generate, and the figures available for other added-value elements
refer to the overall distribution process, without distinguishing between physical and online
distribution. Official sources such as Eurostat provide an overall figure of added-value per
film distribution, video and TV programmes in the European Union of €4,521 million in
37

De Vinck, D. & Lindmark, S. (2012): The film sector. Luxembourg: Institute for Prospective Technological
Studies. Joint Research Center. European Union.

39


______________________________________________________________
2009.38 If we consider this, the online market share of the overall film distribution market
worldwide is estimated at 5%,39 thus if we assume the same percentage for Europe and we
apply this percentage to the value benchmark set by the filming distribution industry, then
we can estimate that the added value of online distribution in Europe would be approx.
€226 million.
But added-value cannot be measured only in economic terms. The aspect of cultural and
heritage preservation must be taken into account when assessing the contribution of the
online film distribution sector. Online distribution provides an opportunity to raise
awareness of European film heritage that otherwise would not be possible.
2.2.3.

Value chain analysis

The conventional film industry is made up of several categories of players, who develop
their activities in the various areas of the value chain: production, distribution and
marketing, and exhibition.
Figure 9: The traditional film sector value chain

Source: Adapted from De Vinck & Lindmark: The film sector (2012)

The conventional categories of players involved in the film industry are producers (involved
in pre-production, production and post-production processes), distributors (involved in
distribution and marketing processes), exhibitors (focused on general cinema exhibition),
retailers, both physical and online (focused on selling films after cinema release), and
broadcasters (focused on screening films through pay-TV services and free-to-air TV),
through the release windows system.40 This system is based on a multi-stage process of
showing and viewing films. Stage one is premier followed by general cinema release, then
video home rental and sales, pay-view services, pay-TV and finally free-to-air TV. Time
intervals between each stage are contractually agreed upon, or defined via industry
consensus.41 The most common schedule for release is as follows: home video rental and
sales is 6 months after general cinema release; pay-per-view release (film rental services
from pay-TV broadcasters or online film rental services) 3 months after home video release
(hence 9 months after cinema release); pay-TV release (free release on Pay-TV services) 3
months after pay-per-view release (12 months after cinema release); and free TV
broadcasting 12 months after pay-TV showing (24 months after cinema release).42
38
39

40
41
42

Eurostat. Accessed on 17 October 2012.
De Vinck, D. & Lindmark, S. (2012): The film sector. Luxembourg: Institute for Prospective Technological
Ibid.
Ibid.
Ibid.

40


________________________________________________________________________
Each category of agents is made up of different types of companies: individual creative
entrepreneurs, SMEs focused on national markets, national large companies vertically
integrating the entire film value, or horizontally integrating portions of the value chain (for
instance, retail) across several types of content (retail films, music video games, etc.), and
large international companies and their affiliates (mainly Hollywood studios).43 These latter
players have a dominant position in the European film market, which has strong
implications in digital distribution, as will be analysed further on. According to the European
Audiovisual Observatory, in 2011 the market share of US films in Europe accounted for
61.4% of admissions44, and in the past five years has been over 60%.
Figure 10: EU market share by country of origin in 2011 (%)
8,4%

1,6%

US films
European films

28,5%

EU‐US coproductions
61,4%

Others

Source: European Audiovisual Observatory

Although the dominant position of US films refers to cinema exhibition, it also applies to the
other release windows (home video sales and rentals, online distribution, pay-TV and freeto-air television).45
Digitisation has been the basis of each of more recent innovations in the film industry. In
fact, digitisation affects all processes of the film industry value-chain.46 Some of them, such
as production or post-production, are almost totally carried out digitally (digital cameras,
post-production software, etc.). The first step towards predominant digitisation was the
transition from VHS standard to DVD standard in the mid-1990s. The second step was the
distribution of digitalised films by digital broadcaster TV networks (both free and paid
services). The third step was the replacement of 35mm film with digital copies played
through digital projectors during cinema performances. Finally, we are currently undergoing
the last stage of the digitisation of the distribution process: replacing physical distribution
of digital copies (DVD, Blu-ray) by online distribution via the Internet.

43

44

45

46

De Vinck, D. & Lindmark S. (2012): The film sector. Luxembourg: Institute for Prospective Technological
European Audiovisual Observatory (2012): Press release: “EU box office inches to record high in 2011 as
European
comedies
provide
welcome
relief
and
3D
matures”
http://www.obs.coe.int/about/oea/pr/mif2012_cinema.html. Accessed in October 2012.
De Vinck, S. & Lindmark S. (2012): The film sector. Luxembourg: Institute for Prospective Technological
Ibid.

41


______________________________________________________________
These two last stages are considered in detail in the following paragraphs, since they are
the processes of digital distribution to which the film industry is currently devoting their
efforts, and the processes which are decisively contributing towards reshaping the current
value chain. Firstly, the drivers and barriers of digital distribution of films for cinema
release will be analysed. Secondly, the opportunities for and threats to online services will
be described.
Starting with the shift from physical to digital distribution, the driving force of digitisation in
the distribution process within the cinema release system are the costs saved overall in the
distribution process both for producers and distributors. The replacement of 35mm film
with digital archives allows distributors to save approximately €1,000 per copy.47 In major
film releases, with thousands of copies being shown around the world, savings through
replacement of physical copies with digital files are clearly evident. Marked savings are also
witnessed in the drop of logistics costs; costs fall dramatically in digital distribution, since
the physical transportation of reels to cinemas is replaced by Internet connection.
The digitisation of films also offers advantages from the post-production point of view. The
process facilitates the processing of information for the same film, such as foreign-language
subtitling and/or dubbing.48
Reducing costs through the digital distribution of films also favours entry into the filmexhibition market by independent or medium-sized producers. They can allocate their
budget to a range of other processes within the value chain, such as marketing activities,
to achieve a wider dissemination of their work. Replacing physical distribution with digital
distribution also enables independent film-makers to become less dependent on major
Hollywood studios in the distribution process and promotes the disintermediation of the
value chain.49
Despite the undeniable advantages of the digitisation of films in post-production processes
and the creation of copies, which facilitates the entry of medium-sized producers, some
obstacles still stand in the way of or slow down digital distribution. The digitisation of
cinemas is one of the most important steps in the overall film industry. Although this
process started more than a decade ago, almost half of existing world cinema screens are
still analogue.

47

48
49

De Vinck, S. & Lindmark S. (2012): The film sector. Luxembourg: Institute for Prospective Technological
Ibid.
Cameron, L. & Bazelon, C. (2011): The impact of Digitisation on Business Models in Copyright-Driven
industries: A review of the Economic Issues. The Brattle Group, Inc.

42


________________________________________________________________________
Figure 11: 2011 Cinema Screens by Format in the World (%)

28,7%
Analog
49,3%

Digital non 3‐D
Digital 3D

22,0%

According to the European Audiovisual Observatory,50 the situation in Europe is similar to
the world situation with 52% of cinema screens digitalised.
Figure 12: 2011 Cinema Screens by Format in Europe (%)

48%
52%

Analog
Digital

Source: European Audiovisual Observatory (2012)

The biggest problem in the digitisation of cinemas is the large investment required for
digital equipment for performance, as well as other major investment for transfer that must
be made by cinema owners. The average cost of cinema-digitisation is about €100,000 per
screen (accounting for digital projector, 3D screen, in-house management structures and
systems).51 However, the main beneficiaries of digitisation are the distributors, given the
savings in costs they reap,52 although in the transition period, where analogue and digital
cinemas coexist, distributors must generate both types of copies, which poses an extra cost
that will continue if the digitisation process of cinemas slows down.

50

51

52

European Audiovisual Observatory and Media Salles (2012): Press release. Over half of Europe’s screens are
now digital but single-screen cinemas are struggling. Strasbourg/Milano 18 January 2012.
De Vinck, D. & Lindmark S. (2012): The film sector. Luxembourg: Institute for Prospective Technological
According to the Independent Cinemas Office of United Kingdom, a cinema-ready digital copy of a standard
feature film costs as little as £50 as opposed to £500 – £2,500 for a 35mm print copy:
http://www.independentcinemaoffice.org.uk/resources/how-to-start-a-local-cinema/building-design/digitalcinemas. Accessed in March 2013.

43


______________________________________________________________
The investment needed to digitalise cinemas may be acceptable for chains and multiplex
cinemas, which show films of high commercial value, but may prevent access to the digital
age by smaller independent European cinema networks.53 In addressing the reluctance of
cinemas to tackle digitisation due to the high costs involved, a new financing model has
been developed in the USA: the Virtual Print Fee (VPF).54 The model is based on the
acquisition of equipment by a third-party investor and both cinema venues and distributors
pay a fee (higher for distributors given the potential savings that can be achieved) for use.
Focusing analysis on the online distribution of films, both through Internet services and
services managed by broadcasters or telecommunications operators, the main driving force
comes from the growing tendency among audience viewers towards this new form of
distribution, which in turn is leading to the digitisation of the producers’ catalogue. Online
distribution also allows innovative business models to be implemented, better suited to the
demands of users in critical areas such as reproduction quality, prices or new services
provided by connected devices (smartphones, tablets, Smart TVs, etc.).
However, there are also barriers that hinder the distribution of digitised works: online
copyright infringement is one of them. While it primarily affects the home video and cinema
release window, it also limits the release of legal services by practising unfair competition.
Illegal services offer free access to a quality digital copy of films, which prevents legal
services from intervening and competing with them.
The other obstacle, common to other cultural digital content and occuring in the distribution
of digitised films as well, is the territorial limitations of licences granted by producers.
Licensing policy works within a defined territory inherited from the distribution of physical
copies, and which significantly restricts access to content by users who seek a broader
programme on the Internet available in the aforementioned operating windows.
In addition to these driving forces and hindering obstacles, the most important challenge
that online services face in becoming a real alternative to traditional channels of
distribution is to shorten the time gap between cinema release and online release. Ideally,
it should be at the same time as home video release or even before. There have already
been attempts to prioritise online release,55 however, the majority of large producers and
distributors continue to rely on the home video release window, since it has been the main
source of revenue for the last 30 years, exceeding even box-office sales and income.
Producers have preferred to slow down online release in an attempt not to cannibalise their
income from home video release. Nevertheless, the last few years have witnessed a change
in attitude with the launching of successful online services, like Netflix, Vudu or Lovefilm,
and new opportunities have been opened up for online distribution by modifying the
traditional release schedule, providing an alternatives to home video rentals and sales.

53

54

55

European Commission (2010): Communication from the Commission on Opportunities and Challenges for
European Cinema in the Digital Era: Brussels COM (2010) 487 Final.
Arts Alliance Media (2010): Virtual Print Fee: Questions and answers from Arts Alliance Media website
http://www.edcf.net/edcf_docs/vpf_q-a_200710.pdf. Accessed in March 2013.
In September 2012, Twentieth Century Fox announced the release of digital movies through the Internet
weeks before DVD release. http://www.nytimes.com/2012/09/07/business/media/fox-to-offer-digital-moviescloser-to-theater-release.html?_r=0. Accessed in October 2012.

44

Public and Commercial models of access in the digital era

Public and Commercial models of access in the digital era

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